Evans: Fed To Remain Accommodative for Some Time to Come

Federal Reserve Bank of Chicago President Charles Evans says now isn’t the time to pull back on the central bank’s easy money policies.

“I expect our overall stance of monetary policy to remain highly accommodative for some time to come,” Mr. Evans said in the text of a speech to be delivered Thursday in Madison, Wisc. “It is not yet time to remove accommodation. The data are still not definitive enough to say that now is time to adjust” the pace of the Fed’s ongoing bond-buying stimulus program, the official said.

Mr. Evans, who is a voting member of the monetary policy-setting Federal Open Market Committee, has been a consistent supporter of the Fed’s $85 billion per month bond-buying program, which is designed to lower unemployment and push up growth. Ahead of the September FOMC meeting, however, the official had described himself as open-minded on the question of whether the Fed should begin to pare the pace of bond buying to reflect the economy’s improvement.

Last month, the Fed dashed widely held market expectations to trim the bond buying, saying the economy had not performed as well as officials had expected. Financial markets were caught off guard and many criticized the Fed for its choice.

The outlook for bond buying is now in flux in the wake of the government shutdown and borrowing limit battle, amid signs the Fed may stay the course on asset purchases to offset the uncertainty created by Washington. The shutdown has also broken the stream of government-generated data the Fed needs to make a choice on policy.

“Only the data can tell us how much progress we’ve made, and they aren’t saying much right now: The data available in September were inconclusive, and since then, incoming information has been silenced with the federal government shutdown,” Mr. Evans said.

The central banker repeated that he believes any change in the monthly pace of purchases isn’t the “critical” issue because the bigger issue is the ultimate size of the purchases, and the fact that even when the Fed stops buying bonds, its large balance sheet will continue to provide assistance to the economy.

Mr. Evans said there’s no urgency to raise interest rates, and he said that if price pressures remain benign, then the jobless rate could go under 6% before the Fed considered raising rates.

In his speech, Mr. Evans said fiscal policy problems were clearly not a plus for the economy. And as things currently stand, the official said “The economy continues to perform below capacity.”

But Mr. Evans remains optimistic about the outlook, saying the nation is on the verge of a “virtuous” circle. He expects growth to pick up to 3% by next year, and for what is now a 7.3% jobless rate to tick down to just under 7% by the end of 2014.

The official noted that inflation continues to remain well under the Fed’s target. “There are simply no signs of cost pressures building,” the official said, adding “it could take several years for us to return to our 2 percent inflation objective.”

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